SCENARIO PLANNING IS HELPING

SHIPPERS TO MAKE SENSE OF

UNCERTAINTY
Change has become a constant, so companies need
strategic and agile solutions

By evaluating carefully crafted "what-if" scenarios, decision-makers can test-drive

potential solutions to various supply chain challenges and choose the ones most likely to
yield the best outcomes.
The management technique, called scenario planning, is not new but is more critical
than ever at a time of extreme business uncertainty. Penske Logistics is using advanced
scenario planning modeling to help shippers retune their supply chains to fast-changing
markets.

Is Your Customer Base Changing?

"We have seen an uptick in demand for our scenario planning services as shippers
navigate the changes wrought by the COVID-19 pandemic and other uncertainties," says
Amy Ilyes, vice president of logistics engineering for Penske Logistics.

These changes take many forms, and the potential supply chain responses are just as
varied. But the range of scenarios that can be modeled is limitless, and each one can be
aligned with the shipper's business goals.

"One of the most common challenges today is managing changes in customer profiles,"
Ilyes says. In a volatile commercial environment, business models are constantly
adjusting to shifting demand and the emergence of new business opportunities. Each
shift often requires significant changes in supply chain design and management.

An example cited by Ilyes is a Penske customer located on the West Coast of the United
States that delivered to bars and restaurants. As many of these establishments closed
when the pandemic hit, the company lost a significant portion of its customer base.
However, it also experienced increased demand in markets such as food service. "That
meant the company might need to pick and transport larger orders, which required it to
look at different supply chain solutions," Ilyes explains.

The arrival of a new customer may increase order volumes, which impacts the amount
of inventory a company holds as well as the transportation and warehousing services it
needs to support the business. Different combinations of these variables can be
modeled and evaluated using scenario planning.

Modeling Short Supply

Another issue that has become more common for shippers is dealing with labor
shortages in critical parts of the supply chain, such as trucking and warehousing.
Scenario planning can help shippers map the consequences of such shortages and
develop mitigation strategies.

An example is a modeling exercise Penske undertook for a client that explored the use
of different classes of drivers to offset shortages of these professionals. Penske looked
at the network design implications of replacing tractor-trailers operated by drivers with
Class A licenses with smaller vehicles driven by individuals with lower classes of licenses.
The shift could increase the total number of miles driven in the network but make it
easier for the company to source drivers.

Inadequate staffing levels in warehouses can lead to lower productivity and higher error
rates. An obvious solution is automation, and Penske uses scenario planning to assess
this option. For example, a pilot project looked at the business case for using robots to
work in certain areas of a customer's warehouse. The project also considered the
deployment of automated forklift trucks, especially in more expansive lanes within the
warehouse where packages are moved over relatively long distances.

Careful Preparation Pays

As Ilyes explains, in addition to deep supply chain and modeling expertise, this type of
scenario planning requires a firm grasp of technological developments. Supply chain
technology evolves rapidly, and a solution recently written off as too costly or unwieldy
can suddenly become viable. Penske works with robot solution companies to keep
abreast of the latest innovations in this area.

Shippers also need to be prepared if they are to get the most out of these exercises, she
advises. Preparation is particularly important when it comes to data. "Depending on the
scenario, we may need a lot of data. For instance, modeling a warehouse requires
transactional data on product flowing into and out of the facility," Ilyes says. Penske
uses the data to build a baseline scenario of the warehouse operation. "We incorporate
every facet of the operation and build a model that explores different configurations,
such as changes to the building and the layout, possible slotting arrangements and labor
requirements, and in which aisles robots could be used."

Given the sheer range of modeling possibilities, Penske also recommends that "shippers
come to us with well-defined problems," says Ilyes.

The market unpredictability companies now face is unlikely to abate soon, and business
trends such as the growth in e-commerce will continue to reshape supply chains in the
medium term. Companies will need scenario planning to help them navigate these
changes.